`Correcting' for The Consequences Of Rapid Reform

ByEric BourneDecember 31, 1992

VIENNA
— ECONOMIC reform in the former Soviet area had an uneven record in 1992.

Some fateful decisions over the general strategy of turning a centralized system into an open market seem inevitable in 1993.

Reform itself is not at stake. But from Russia and Poland to the Balkan states, all governments face the same dilemma: Shall an unequivocal leap from a state-controlled system to a capitalist free market be continued at a rapid pace, however painful that is for the meagerly paid majority? Or should reform be slowed to ease the hardship on consumers?

Early this year, Poland - the front-runner in the so-called "shock therapy" slowed down reforms for social reasons.

Russia's new prime minister, Viktor Chernomyrdin, has pledged to continue or even deepen reform, though without "deepening the impoverishment of the people," he added. His appointment was not just an outcome of conflict between reformers and hard-liners ready to take Russia back to the past. Reformers and conservatives both seemed alarmed enough at Russia's industrial decline - and its consequences already evident in Eastern Europe - to want reform conducted more cautiously.

The former communist states miscalculated in expecting greater Western aid or access to Western markets after they showed a genuine intent to implement radical reforms.

A year ago Eastern Europeans all talked as though they expected entry into the European Community to be almost automatic. But EC countries have their own formidable problems, and with other Western European countries also seeking admission, the EC warned the former communist states that they must expect to wait some years at least.

Western leaders and economists also misread the situation in anticipating much quicker East European and Russian adjustment to change. The social and political hazards of reforming too rapidly were not seriously taken into account. Nor did they give sufficient weight to the lack of technology and capital in the East.

Eastern Europeans have managed to increase hard currency exports, but mainly by selling off natural resources. Engineering ventures, which at one time could count on the Eastern market for demand, have yet to gain a foothold in the sophisticated world market. Huge investments are needed, and local capital is lacking. Foreign investors are increasingly fearful of political instability and industrial unrest. (Internal divisions are threatening democratic governments in Poland, Hungary, and Bulgaria.)

The new Czech Republic and an independent Slovakia will have difficulty regaining the relationships with the West that buoyed the now defunct Czechoslovakia.

Rising unemployment, already at 10 to 12 percent, and the dramatic decline of real purchasing power overshadow all the countries' economies. Purchasing power in Poland, for example, has declined 24 percent in two years.

Forty years ago Milovan Djilas wrote his book "The New Class," depicting the privileged elite in Soviet-style societies.

Today has its parallels. An ostentatious "rich" minority has done well in the free market, which fuels growing worker protest.

The majority belong increasingly to impoverished middle and lower classes of doctors, teachers, other professionals, and laborers, and even poorer pensioners.

Romania's recently appointed premier, Nicolae Vacaroiu, pledged continued reform. But he, too, added, "without further social decline and without the people bearing all the cost."